In many business-to-business transactions, checks, ACH/EFT (automated clearing house/electronic funds transfer) and wires are used for payment. Commerce systems strive to improve processing efficiencies and improve integration with existing business operations.
Commerce systems seek to minimize the risk associated with defaulting members. To effectively manage risk, commerce system participation can be limited to members meeting pre-determined standards. In addition, more conservative daily aggregate debit limits and single transaction limits can be established at either a regional or bank level to manage risk.
In a typical commerce system, if a Buyer Bank (Issuer) fails to settle a payment, a payment processing organization can be allowed to reclaim funds from a Supplier Bank (Acquirer). If funds reclamation is unsuccessful, the payment processing organization may rely on the liability allocation in the rules and the loss-sharing provisions stated in the appropriate by-laws governing the relationship between the Buyer Bank, the Supplier Bank, and the payment processing organization.
While a funds reclamation provision may be used to reclaim funds, a funds reclamation provision creates uncertainty regarding the finality of funds for the Supplier Banks. This uncertainty has already been identified as a concern and a potential barrier to widespread market adoption of any payment processing system. It also ultimately impedes the ability to provide ubiquity in the marketplace.
Additionally, a funds reclamation process has many operational challenges. Because of multilateral netting, potentially all participants in the commerce system could be impacted from a recast with those participants that may have received funds via a credit position subject to funds reclamation. “Multilateral netting” can be defined as the offsetting of receivables and payables among three or more parties to a transaction, with each making payments to an agent or clearing house for net obligations due to others or receiving net payments due from others. In a multilateral netting scheme, any participant that misses funding a debit position by any amount of time (e.g, 1 second) or short-pays by any amount (e.g., 1 cent) could trigger a recast. All transactions may have to be re-evaluated to determine which participant and/or which transaction caused the recast. This is undesirable.
The payment processing organization could provide limited funding to prevent such a recast scenario. However this results in the payment processing organization accepting settlement risk, which conceptually defeats the goal of eliminating settlement risk through recasting.
Embodiments of the invention address these and other problems, individually and collectively.